>> what has happened in the last two months is we are seeing a breakdown again in a lot of the stock market. >> there is recognition by the fed that if you tighten financial conditions much more, you are going to do damage to the economy. >> it is very difficult to see why they want to go higher from here. >> the set is retaining its

optionality. >> it is hard to see with the positive category is for markets today. >> this is "bloomberg surveillance." manus: live from new york city this morning, for our audience worldwide, this is bloomberg surveillance alongside tom keene and lisa abramowicz, i'm jonathan ferro. builds up, stocks down in the fx market. tk, euro-dollar, 105. tom: you go wow when you see a number move. i did a hat trick. it is wow wednesday across assets. where do i begin? i begin with the real yield and the effect on the fx market.

i never thought i would see this this quickly. lisa: are people getting a little over there skis here? there was two outcomes. where was the base case of a consumer that was running out of money and potential for a recession? it seems to be off the table and some of the expectations even as we see signs of true weakness. jonathan: melted in terms of the objective of what this federal reserve is. i think we are at that point where we are starting to fully internalize this high for longer message. tom: this is a process ongoing and again, you can see the cross fx and into the bond market. i'm going to shift from the

liquidity and findability of our world over to tangible assets. dare i say real estate. jonathan: looking forward to it. let's start with the price action. in the bond market, yields through 450 and back down again. that is that dollar strength. the euro against the dollar. lisa: it is amazing. the dollar strength has been the one constant. what i'm watching today, the bank of america chief executive officer takes on a renewed importance simply because we have heard from a series of bank ceos and they all lean into this stronger for longer kind of story. hearing that from david solomon, also from jamie dimon.

your market, micron is reporting earnings. i think the earnings are going to be what could potentially be a most interesting data point simply because you look at weakness. at 9:00 p.m., the second debate of the republican presidential candidates is airing on fox. who is not going to be there is the former president donald trump who will be in detroit with a follow-up act to president biden yesterday. i wonder how much he is going to discuss electric vehicles and lane into some of the industrial policy. jonathan: is he invited to the picket line? lisa: i don't think so. it has been more frosty between the aew and the former president. tom: eventual historian was with us yesterday and she was riveting. off camera, she was really heated about should a president pick a side. my point is, i don't think anybody out there is picking

capitalism, job formation, investment cash, the automakers trying to get to the future. it is a pretty lonely group. jonathan: he did not have a choice. where else? is he going to be tom: i will leave it to the expert but the answer is there is x number of states, let's say 10 states that matter. michigan is clearly one of them and all this is about is the electoral votes and the closeness of that race the last two elections. jonathan: as we said, around the table with us, the macro strategy. we have tried to frame this the following way, whether this move in the bond market is a reflection of resilience an extension of the cycle why recipe. is that the latter and not the former? chris: i think one of the big shifts is bond yields have made

this last leg higher is that it is no longer being accompanied with cyclical leadership. most of the air was bond yields up at cyclicals over differences. that changed about mid july when we started to release to the weakness in discretionary. we started to see softness and industrials. it first really began in europe. that has now spread here. i think you have to ask the question, is this last move up in yields the signal we are and of cycle? i suspect it probably is. we have thought about this a lot. most in this business have spent their whole career waiting for bond yields to go up. now it is finally happening and all people are clamoring to do is to buy bonds. i think it is too early. i don't know if we get there or not but we have had one mantra all year.

the trended yield is up until the markets suggest otherwise. tom: i took a head off yesterday. i totally agree with you. we can go blah blah on the show, but the technicals on the 10 year yield are higher yield. we could bar ourselves with that but i want to go to the real yield, 2.2 2%. i modeled that months and months ago and i'm shocked at how suddenly we got here. tell me about the suddenly of the yield. chris: i think what is interesting about this business is one of the real constance is the surprises seem to be in the direction of the trend and the trend in yields is up so i doubt think it to be a particularly big surprise that they have gone out. when i look at the real yield, i think it is a reminder investors are going to demand a positive real yield.

even if you are in the very optimistic inflation camp, you can certainly justify nominal 10 year yields. that is not even remotely historically unusual. jonathan: you and i talked about the read sector. to me, there is all of this market talk. is it going to be an explosion of the read industry as we have seen? chris: i think the other lesson of trend following is appearance of stress. what made new lows yesterday? what made new relative lows yesterday? i don't think we should be surprised by the price action if we let the trend dictate how we position. when i look across all of the sectors and look at the difference between something like reads or discretionary or even tech which while they may

be vaunted, internally, they are very weak and compare to something like energy, 95% of the -- sector is still above the average yet it gets no respect in the attention. it is a very wide diversions between how good energy is a how weak the rest of the market is. lisa: do you say something is breaking and we just don't notice? chris: typically, you look at the moving average and say it is upward sloping or correcting a trend and therefore, we should look to buy weakness. i think we have to nuance that a little bit because the overall trends are so poor. we are almost 12 months off the low. we never got more than 65 or 70% of the s&p. that is very unusual for the

first year of a new bull market which tends to be the broadest, the fun part of the cycle. my suspicion here is the market all your has told us it is not convinced we have seen the worst part of the business cycle. lisa: at this point, you said we could get up to 510, 5 20 before something starts to reverse. what is your sense of what is behind this? is this something more than people just pressing a sell button if everyone says they are buying and there is no evidence in yields? chris: i think the story has been well talked about. i find it interesting the shape of the curve has begun to bear steepen. click quite common in developing economies were inflation issues have been more frequent. i also think as you and i have talked about, there are structural changes. the chinese are sellers.

you have three relatively large buyers or traditional buyers of u.s. treasuries who are not on the playing field anymore. jonathan: do you have a decent understanding of where the bars are coming from? chris: i think on some level, there is an attractive yield where you want to be a buyer of bonds. i keep going back to this idea of it has to be 200 basis points above cpi. this is going to be a very unsatisfying thing. yields will go up until they don't. tom: let me make a banner here. jonathan: what does that morning look like? can you give us an idea? how people understand how to identify that moment? they go up until they don't. chris: look for some could pitch you'll -- tnt.

you have been doing 40 million or 50 million shares a day. i think the covid inflection point, 80 million or 90 million shares. the flows continue to pour into the dlt. it don't need to see some change there? my experience in this business has been in move reverses when the flows get extremely lopsided on the other side and we just have not seen that. : i was talking about the point where this gets solved. in foreign exchange is expressed, today, dollar lumi where you get week canada and martin feldstein was great on this because it is pointy and then it fixes itself fast. you anticipate some of these excessive moments in september

will fix themselves fast. chris: i do. they are bare steepeners until they are not. the two we have seen historically are 1969 and second half 1973 to the 1974 reception -- recession. what happened in the second half is what always happens. i think we will get there at some point. i'm yields did not follow until you are well into the recession about halfway through. that is such a departure from what we are all used to the last 40 years. that was not the case in the 1960's and 70's. tom: is it time for nerd bandai namco chris: yeah. tom: the point eunice of stochastic moves. lisa: works everywhere. tom: for chris verrone, this is

the heart of the matter. you have to find the trend and stay with it until it is not there. did i do ok? chris: pretty good. tom: a perfect example. jonathan: this is his current stance on things. we remain reluctant to stand in front of any further weakness and treasuries given the breach of 450 on tens. tom: i would say in radio and television, stay with us through the morning. this is extraordinary some of the moves we are seeing. jonathan: coming up, with the threat of government shutdown looming, trying to bounce back. coming off three-month lows at the close yesterday. in the bond market, yields retreat.

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>> we will be bringing up four of the appropriation bills we have been trying to do since july. finally, we got the members together to be able to make that happen. if we are able to finish those, that will make it 73% of all the discretionary funds that we are supposed to appropriate for this time. we will move a continuing resolution, bring a rule to the floor to secure our border and keep government open. jonathan: the reality of a government shutdown. trying to bounce after a decent day of losses. this morning, positive. you both caught up with mike wilson of morgan stanley. lisa: i got the impression that he felt a lot more conviction

taking a look at consumer stocks and saying this is exactly what we thought would happen and it is showing real weakness. he said it is only a matter of time. jonathan: did he say anything about playing the recovery? lisa: it was too soon to get there for him but he did talk about how he could go more whole hog in the some of these areas that are mostly beat not. he said we are late cycle getting close to the end but it could take another year. jonathan: the major message for mike wilson is you have to be in the market. he is not in love with being in cash. he wants to participate even within his caution. the usual wilson victims. i get that. the panic right now in the modern financial media is go to cash. right now, this wednesday morning is a massive go to cash. jonathan: this your tagline.

lisa: [laughter] tom: i was at the savoy in london and somebody goes, you must be killing it. i said to carry on the leverage is killing me. don't think people understand that sometimes three is not 15% roundabout. everyone else's looking at me like i am nuts. jonathan: just want to touch base on the euro. to touch base with four days of yen weakness. on dollar-yen, we are pushing 150. this dollar a whole lot stronger. tom: and, yen, 4920 as they are. it will be interesting to see how japan reacts to what we see. i am focused on the tangible market. that is our politics of this

nation. thrilled to have ed mills, washington policy analyst at raymond james. a lot of work out of boston college. have you seen this before? a president on a picket line? it is original but is this an original talk about shutdown? ed: it is not. we have enough data to go back to 1995 to say what happens in each of these shutdowns and what we found was somewhat counterintuitive that on average, the market is up 3.2 percent during government shutdowns. that tells me that the shutdown in and of itself should not be a driver for this market. we have a lot of other headwinds that we have to focus on, come that the debt service burden for this country, longer-term fiscal trends. government shutdown, i don't have a huge concern about market

implications for. tom: there is a photo of tip o'neill sitting with howard baker and somehow, they got things done. that is not happening right now. how do you get to compromise in a fractured washington? ed: a different world. i have been focused more on the senate than the house. i thing almost all of the headlines have been about the house of representatives when in reality, the senate either sometime in the next day or two, may be passed october 1 is going to pass a continuing resolution and it is going to have well north of 75 votes. once that is done, the pressure is going to build on the house to at least have a vote on that. if they have a vote on what passes the senate, i think there are probably more than 300 votes on that bill. you don't have to go through the rules committee. kevin mccarthy does not have to have a fight on the floor where he has to have democrats

supporting even having a conversation putting -- put it on the suspension calendar. lisa: a saying there is a good chance we could avoid a shutdown? ed: could we have a shutdown for a day or two? it is certainly possible because we're looking at the timing of how the senate is working on this but if there is a shutdown, i don't think it is long-lasting because the pressure is going to build so much on the house to have a vote on with the senate passes. look at what the senate does and if it is 75 or 80 votes on the continuing resolution, i think that is a positive sign. another could be if the house is not able to do their own cr. lisa: moving away from the crystal ball of washington politics, there is a question about the dollar being stronger. this comes at a time after years when a lot of nations were looking to depreciate their currency. is the stronger dollar actually a benefit right now to the biden administration? ed: i could argue yes and when i

have been on trips to europe and european investors, they think the federal reserve and treasury are in cahoots. that all of the push for rebuilding the industrial base in the united states through the inflation reduction act, if you have a strong dollar, it is cheaper to manufacture things here in the united states and to the extent that that is supporting the fiscal policy in the background, i do think that is an underappreciated aspect of what the fed has been doing. lisa: do you think that is valid in any way shape or form or just conspiracy theory? ed: i think there are two things. one, this is the first time in generations where we have challenged the industrial base of europe, rebuilding it here in the united states to the treasury secretary used to be the fed chair. i do think there might be a few

conversations and a little bit of work together between the two. tom: tell me about the debt and deficit. you are a grizzled pro at this. are you concerned about our debt and our deficit? ed: i have a growing concern. one of the things we look at if you check the national debt and the debt service burden. it is going to eclipse what we spent on discretionary spending in non-defense discretionary spending pretty quickly. for years, when i first came to capitol hill, being concerned about the debt and that deficit. those are returning and going to have a huge impact on our politics and ultimately on kind of what we are able to spend. when i look at the 2024 election, probably one of the biggest decisions that is going to be made are the tax cuts that expire in 2025.

that is another $4 trillion. if you are having a conversation about the debt and the deficit, what are you going to do with those tax cuts, what is the implication for the economy especially on the individual side because those are the parts that expire. jonathan: such a good point. ed: i have always said the members of congress really care about the do and the deficit when they are in the minority one of the big concerns is that the way in which you think you should solve it is different. republicans like to grow revenues through tax cuts and democrats try to feel they want to grow revenue through tax increases. jonathan: unless the market forces that discipline onto congress and washington in a way it has not for a long time. tom: it should be a longer question. do either of these parties feel like they are in the minority?

they have both acted like they are in the majority. ed: i think when you are in the white house, that is kind of what sets it. yes, republicans have a majority in the house. in reality, with the senate, joe biden as president, they kind of can push on the president and make him half tough conversations. jonathan: thank you. smart as always. shortly in this big move in the fx market, the head of g10 at standard chartered. we will be catching up with him in just a moment. the president of the united states in the last 24 hours on the picket line. lisa: i wonder what the fed thinks. ask for those wage increases when they have already accepted 36%. jonathan: it is pretty remarkable to see. live from new york city this morning. equity futures up by a third of 1%.

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jonathan: live from new york, here the price action. trying to bounce up on the nasdaq yesterday. the lowest since june 9 on the s&p. that is the equity picture at

the moment. yields unbelievable. new closing high, 455. down by about three or four basis points on the 10 year. it is quite a move. tom: oil did not participate the last couple of days for other regions. -- reasons. you see it in the foreign exchange market. i did not think you were going to come back from london. jonathan: looking at cable, why not? tom: 119, you are a landowner. you can go nominal yield analysis as john just did or inflation-adjusted analysis and it is a wow wednesday. jonathan: the euro up 105. 11 consecutive weeks of euro weakness and the dollar strength

and we are close to it right now. lisa: one conviction trade against stock weakness is the dollar. bonds are not working as the hedge in the same kind of way. people are using the dollar in that sphere because strength is outperforming. jonathan: thought dollar index heavily weighted. to see that get closer and closer to 150 and you have been right on top of it. big question, where's the line in the sand for the boj ako tom: i think the ms. -- mystery with englander coming up. i don't think there is a line in the sand. they have to look at it within the moving parts including australia yen as a pacific metaphor. jonathan: the dollar-yen right now, 149. president biden taking to the picket lines endorsing the uaw pay demands. filling automakers to stick with

it. you deserve what you earned and you earn a hell of a lot more than what you are getting paid right now. to your point, just compare and contrast with is coming out of the federal reserve. lisa: the biggest tension is people are saying now is our time to get more in the corporate profits. key question to me is how much are we going to hear an echo of this by former president trump. either side is trying to play to the anger you are feeling and the worker. regardless of anything else, that is the focus right now. tom: this is like kroger. there is no corporate profits. they are running a line of 10%, may 12%. bringing it down to the net income level. it is like selling bananas in the produce section. jonathan: let's build on that because i'm with you. there is something very bizarre of taking shots of wall street on the picket line with uaw. i cannot think of many people on wall street who have made money

investing in gm stock with the exception of a 12 month period. that stock has been money for the best part of 10 years. lisa: it does not cohere with this feeling of worrying strength. a feeling of buying -- being bottomed out in the industrial sector. the real question is where's the debate going to him? am i going to stand with you or what brought us to this place? i think that is what is inder pinning anger politics. jonathan: this amazing stat in that book. have a think about this. 1990, china's share of global manufacturing, 3.5%. 2021, china's share of global manufacturing, 30.5%. totally hollowing out domestic manufacturing bases in developing countries and sending it away. we saw the backlash in the

politics of 2016 and on your screens in detroit. tom: even if it goes to other nations on the pacific rim, there is intermediate supply development where a lot of it is still being done in china. to be fair, there is an international and domestic china discussion and people thought china away from the real estate debacle might be doing better than good. general motors, the last 10 years annualized return of the bloomberg professional service, 2.02%. jonathan: wall street were the winners in the leadership and we have talked about executive pay and we will continue to talk about executive pay. u.s. government shutdown nearing its saturday deadline despite incremental press. no clear path to a bill to overlook death in the house. i wanted to finish with this

one. evergrande troubles deepening. the chairman being placed under control this according to people familiar with the maddow -- matter. the billionaire being monitored at the designated location adding to questions about the company's fate and the chairman's fate. lisa: especially since he was one of the most highly ranking communist party members and was incredibly politically influential. one of the richest asian influencers out there. he is worth now less than $2 billion. at one point, 42 billion dollars was his network. i wonder what this means. he is being detained sort of but not necessarily arrested or charged. i don't understand. six month timeframe seems to be the official limit. tom: i'm not going to comment on that. what i am going to say is the easy answer is simple. week yuan. is it unimaginable at 2.22% u.s.

real yield? is it unimaginable to see week yuan back to where it was in october of 2005? jonathan: that is the story this morning. one of the most read stories on the bloomberg terminal today. tom: this is a privilege. we love the guests we have especially when they are so good at crossroads. stephen englander joins us now for global wall street. john manley's have a lot to talk about. is it unimaginable that we could see a devaluation of rmb back to where it was long ago six at a 750 level? stephen: i've come to learn our imaginations are pretty limited. it is certainly not the most likely scenario out there. the key problem china has is domestic. it is not its trade balance.

with the world growing so slowly, the odds that it can export its way out especially given concerns in the u.s., concerns in europe, concerns elsewhere about the china trade surplus, they are going out to solve their problems domestically. tom: what do institutions do with what we have right now? what would you expect the fed to do, treasury to do and other central banks? steve: i think the u.s. is focused domestically unless there is something that really breaks internationally. so far, that has not happened. i think it is a mythology about the plaza accord. the reason you get into plazas because you have common interests. as long as the interests are not common, the only rule is every man for himself.

each country is doing its own policy to its own advantage. what we are seeing in markets is how that plays out. lisa: what you make of the, that there is some sort of working together but acknowledgment that a strong dollar by the fed and treasury is a positive for the industrial policy of the u.s.? steve: there could be something to it. i think that it is probably helping a bit on the inflation side combined with the deflation we are seeing in china and chinese imports. given all of the geopolitics driving trade flows, i don't think that exports and imports are a sensitive to exchange rates as they used to be. it could be that we are getting some of the benefits we can keep a hotel room in paris or maybe not paris but elsewhere. but i don't think it is kind of

the biggest deal out there. i would say probably, if you are at the fed, you are saying maybe we get some bonus benefits of this but we have to spend a lot of time making sure that the rest of the world and particularly parts of the world that have dollar debt, that the strong dollar really does not lead to some sort of financial accident. i'm on the fence on that one. lisa: how close are we to that? some sort of financial market accident? steve: it is not eminently visible, but what we are seeing are scenes like the kra index losing the regional bank index, kind of going down pretty much two days out of three. there is some concern there. there are pockets of concern elsewhere that certainly is not helping -- the world is not growing nearly as fast as we expected. less so than the strong dollar, the higher u.s. rates are not helping the growth picture but

there is nothing around the corner. tom: talking about is still casted move where things weaken and if you look at the chart, the fact is, it always reverses abruptly to stronger loonie at some point. is that what is going to happen this time? we have whatever the events are and then quickly, they will turn around? steve: something to that. obviously, rate differentials have helped but i think if you are in canada going down to florida, you cannot afford to buy a beer because canadian dollar is so weak or if you are in japan, you cannot travel because your currency is so weak. it becomes a political issue. there is nobody arguing in japan that we are doing great because we are so competitive or in canada we are great because dollars 130. i think something usually

happens. what kills people in the market is getting the timing wrong. if you can get the timing right, you do very well but the risk is being premature of those loops. we think it is kind of topics. we don't see the fed raising rates so i think there is a lot getting built in that is momentum right now. lisa: hmmm is this a dollar story and how much is it everything being weak story? steve: everything else being weak, 70%. the dollar strength story, 70%. i know it is a yogi bear kind of calculation. lisa: [laughter] jonathan: i was a tough one to answer. i was curious from your standpoint, this combined weakness in the euro and strength in crude, to borrow some of lisa's wording, just how toxic that is for the ecb at the moment, what do they do with that as the backdrop? steve: some of the chickens are

coming home to roost. some of the structural chickens. their energy policy has not really been successful. there innovation policy has not been successful. trying to fast-track on electric vehicles. the sources of growth, i think europe is a funded currency. swiss is a funded currency becoming much more attractive over time. jonathan: think you are done now. good to catch up, as always. let's finish on that point. where this leaves the ecb. the european growth model, to see the euro breaking down to 105, to see crude in the 90's. what do you do with that? lisa: there is no clear answer and you can hear that from some of their discussions where they want to get inflation down. stagflation is not going to be their base case they are going to be happy with. at the same time, they are between a rock and a hard place. if i knew the answer to that, i would be in a very different position. jonathan: you have spoken to

president lagarde recently. tom: this came up yesterday. you nailed it. her speech that she gave is not implementable given these markets. you are right back to massive short-term data dependency with she and philip pushing against. you cannot have a 60,000 foot plan when you have stochastic moves out there. jonathan: going to some of the credit data. it is not good. lisa: it is worse than what we have seen even during the euro crisis. what do they do with that? is this being worked through and we still have higher prices sibley because of crude and natural gas are going up? jonathan: i feel bad for steve, cutting him off. lisa: you were great. jonathan: i think i did him a favor anyway. equities on the s&p. positive by 0.3%.

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>> >>without accountability, the independence of the site is going to be challenged. challenging the few things we propose in order to restore institution. jonathan: always fantastic to catch up. michael spence on the new permit crisis. catch the full conversation. let's turn to the price action if you are joining us. equities trying to bounce by 0.3% after closing at three month lows. all of the soft landing hope and dream through the summer, we take it all back. levels we have not seen since early june on both the s&p 500.

tom: there is a lot to look at today. fx is the deepest system out there. every day, it varies. sterling is not part of the story today. maybe it will hit tomorrow. jonathan: the euro is, the japanese yen. dollar-yen very close to pushing 150. you have been asking the question, at what point does the stress get too much for the boj echo tom: i don't think there is a level to know, but what he said is so important. institutional and political as well. 106 dxy, as general powell is looking like we have to act. can you imagine a 1:08 i remember framed 110 dxy and that is my mistake. jonathan: does that do some of the work for this federal reserve, high real yields,

stronger dollar? is that part of the objective to put the brakes on the economy and ultimately to help bring down price pressure? does the dollar contribute to the effort? tom: the dollar contribute to everything but i look at it as identification in the system. this is a joy and particularly for our american audience. it is rare that you can say a person, a ceo turned around an airplane. if you are out of jfk or anywhere across america, there is iberia. it is of spain. i hope i'm pronouncing the name correctly, but he did it. he turned around an airline. in conversation with guy johnson. i ag ceo, british airways is his fault. please help us here at your aviation festival with the gentleman of iberia.

di: we are here in lisbon. he is the ceo of iag, the holding group for u.s. airways, one of the big three holding groups that owns the vast majority of europe's airlines. you guys were just talking about what was happening with the dollar. the other thing floating around is what is happening with fuel prices absolutely rocketing higher. brent surging. the spread on top of that, jet fuel also super wide which means jet fuel is super expensive. thanks for stopping by to see us. does higher oil, higher jet fuel mean higher fares? >> feel for as is 25%, but we have about 70% of the fuel.

at the end, fares are related to their supply and demand. guy: competition is really important. the american carriers don't hedge. you are hedge. your american carriers, your competitors are not hedged. do you have an advantage right now because of the higher field price on the north atlantic the american competitors? luis: in north atlantic, with american airlines and iberia, at the end, we have a profit pool of revenues between the different airlines. the customer, they can fly in the airline that they choose. at the end, all of the benefits are there. guy: nevertheless, versus the other groups, if they are not hedged, are you making more money right now in the north atlantic? luis: in the states, they don't hedge and in europe, we hedge it so we are balanced. guy: how is demand that you are

seeing at the moment? i'm hearing the banks are not spending and big tech is not spending big. what is happening with demand and business demand? luis: demand is very strong. particularly premium traffic is amazing. the corporate traffic is the one dachshund -- 70% revenue growth of what we had is better. it was around 80% in volume and 90% in revenue. also, i think people after covid are taking back to the office before what is happening in the u.k. guy: you and i have just been on a panel with rodriguez, the guy

that runs tapi. there is going to be a cabinet minister that is going to determine what happens next in the privatization of the portuguese flag carrier. you have a little conversation with him? you have expressed interest in maybe bringing tap into the iag group. why is that the right call? why are you the right potential owner for tap? luis: first of all, we want to see what are going to be the conditions of the privatization. we are a group that was created in order to corner the sector. excellent brands, excellent airlines below us. i think it could be interesting for us and i think it is the right move for our company of the size of tap they have the advantage to

preserve the customer. i think what we have shown in the past is that all of the airlines joining the group have developed much more. guy: do you think you can own iberia europa and tap? luis: iberia and europa, we are in the middle of the process. tab, when you look at the markets, tab is operating mainly in brazil. we don't have a lot of presence there. also, the former colonies of portugal. i think the networks are very complementary. we have a strategy in the same way with-- guy: can i talk to about what

the future of this industry looks like? this line going to become too expensive because of the journey the aviation has to go one to get itself to carbon neutrality ? jet fuel is expensive. do you think people are going to be able to afford to fly when we make this journey, when your aircraft are powered by sustainable aviation fuel? luis: i think it is going to be more expensive. the question is if it is going to have an impact in the demand. we think that we can the carbon eisen innovation but maintaining a level that can be affordable for the consumers. we have a lot of people that say we are ok to pay a little bit more in order to fly in a sustainable way. i think that is the challenge but we don't have anyone out

there. guy: the british government is already starting to back off of some of its sustainability targets. do you think you could see aviation setting loose? do you think it is a mistake the british government is backing off its targets? luis: the main issue is that we don't have enough to comply with them on mandates they are putting in place. if you cannot -- we need this production. it does not make sense international airlines, we are buying from the u.s. to put in our aircraft in europe. we need to fix that. guy: great to see you. ceo of iag. but there you go.

flying is going to get more expensive. jonathan: the latest on ubs. the stock is lower. credit suisse might have legal issues that ultimately ubs might have to own. ubs is lower by 4%. live from new york city. this is bloomberg. ♪

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it's an amazing thing when you show generosity of spirit to someone. and you want people to be saved and to have a better life, then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. >> what has happened in the last two months is we are seeing a breakdown again in the stock market. >> there is recognition by the fed that if you tighten

financial conditions much more, you are going to do real damage to the economy. >> the fed might hold for a while but it is difficult to see why they would want to go a lot higher from here. >> the fed is not saying 7%. >> it is hard to see with a positive catalyst is for markets today. >> is "bloomberg surveillance." jonathan: freezing cold water over this summer's happy talk. this is bloomberg surveillance on tv and radio alongside tom keene lisa abramowicz. i'm jonathan ferro. your equity market is trying to bounce. yesterday at the close, the lowest since june on the s&p and nasdaq this morning. the euro, 105. tom: those are the major appearances but you can look at all of the granularity in the foreign exchange market and see the trauma out there. it is an abruptness here. the adverb i'm using is

suddenly. luke kawa of ubs. he mailed and said talking first derivative, second derivative and the second derivative, the accelerated force is in place on this wednesday. jonathan: at some point, this treasury selloff market becomes self inflicting. lisa: chris said we might have to get a 520 on the 10 year. in other words, we might not be that close simply because the bulls have been burned so badly they are not stepping in. what i find interesting is where the bias in markets is right now. i think you rightly started with are we seeing a dash of cold water on the goldilocks theory. yesterday, the market moved on the survey that came out disappointing. this shows maybe people are getting nervous around their positioning. jonathan: consumer confidence

lower, house prices higher. doesn't that speak to the moment we are in? lisa: people are getting nervous by how expensive things are getting and yet they keep buying. this is the problem people are grappling with. some of these anecdotal surveys are not reflecting the people doing. jonathan: chris verrone earlier said things can change when something can break. something to bring earlier this year. the banking system and the united states of america. i want to talk about this story. check out the stock of ubs. ubs is down by little more than 4%. here is the story from our team. the u.s. department of justice has stepped up its probe into credit suisse and ubs of ace expected compliance that allowed russian clients. tom: you say does not matter but

it matters here for a bank as their money is sent to bloomberg and asia a couple of days ago under massive restructuring. dealing with the swiss people and the government and all of that. but the overlay is this market we are describing. our banks next? jonathan: consumer discretionary really struggling as well. tom: and that is a gdp question. jonathan: we will get into the equity market and bring you more on that ubs-credit suisse story a little bit later. the tenure back to 450. talked about the fx market already. 9176 on wti. lisa: a terrible mix as you have been pointing out for the ecb but also raises questions for the u.s. where this really

impedes consumer confidence. we get the ceo brennan moynahan speaking. this is after we heard jamie dimon talking up gaming out with the world would look like at 7% rates. they seemed to be a bias in rates going higher in all conversations, not crashing down . cosco coming out with disappointing earnings yesterday. micron key for a lot of the tech trade that has supported a lot of the equity market this year. the thing no one seems to care about is the second debate of the presidential candidates happening in california. it is interesting, no one is talking about this. zero buzz. asa hutchinson got kicked out, no one cared. the former president is going to be down in detroit trying to speak to the anger among some of the picketers with respect to the auto manufacturers. i'm sure he is going to try to

counter what biden did yesterday. that is where all the focus and cameras are going to be. not in simi valley, california. jonathan: how does that group of individuals get any traction whatsoever. tom: the plan, you called me and for middletown and said there is no buzz in this debate. i don't since a buzz out there. i think people have moved on from the drama of the former president not showing up. jonathan: amh coming up a little bit later in this hour. we will catch up with her about the latest situation in washington and michigan as well. every sheffield, ceo i rockefeller. is it time to buy the stock market avery: i would be cautious. to the point you have been addressing, we are in a period of real uncertainty. we have the 10 year yield continuing to move up, pressure in the oil market. as you are saying, people are

still going out and really buying houses, buying cars. actually pulling back on some areas and consumer discretionary spending which suggests they are tightening their wallets because the things that really matter to them, housing, food, energy, transportation, they need money for that and that creates a dynamic where the fed is likely i think to potentially stay higher for longer until something breaks. if something does not break, there is a risk that inflation could re-accelerate. jonathan: great -- tom: great polarity. you have the great deal of kneeling with rishi. your first job was writing the black books at sanford bernstein. you do security analysis granular. how do you combine the worldview with the discipline you learned at sanford bernstein? how do you do that?

avery: it is a lot of fun every day. tom: you are having fun in this market? avery: [laughter] tom: he is having fun while the rest of us are going down in flames. avery: it is very dynamic and always interesting. you always have to put on your macro hat every morning. then have the discipline of security analysis. but deciding what the inputs are into those models for anything that has any cyclicality, which is a lot of the market. we are not just a health-care fund or utilities fund, it is very important to understand what you think about interest rates. what you think about oil and inputs on what to decide to do with the country -- company. lisa: what is the haven trade? avery: i think inexpensive defenses are the safest place to be.

we do like insurance. insurance companies that have conservatively managed their balance sheets have the benefit of higher interest rates. instill in a harder market particularly in reinsurance i think is more interesting. we also do like telecommunications from here. given it looks like the competition from cable we think is lightning and you are getting paid over 7%. i think people forget the earnings of the major telecommunications companies are up since 2019. maybe not up as much as other sectors of the market, but they are not like these dissolving entities that the markets are pricing them for. lisa: what is interesting to me as you did not see -- say bonds. you did not say some of these other hedges people are going to. where are some of these other calls that people have said traditionally have been havens. traditionally have been staples?

avery: i would say we are net would be long short fund. i do think yields are interesting. i think it is interesting as a bondholder, you are worried if yields are going over a longer period of time. i think there is a greater return in yield and bonds today. higher quality you get paid for treasuries seems like a pretty safe place to be. we are also constructive on energy as well. the energy could get tied up in a cyclical trade to the downside at some point but given opec has so much control, i think fundamentally, energy is expected to be higher for longer as well. tom: i still have not gotten over the death of jonathan gray of sanford bernstein years and years ago. you were weaned on that. what do you do with the banks of all different capitalizations? avery: i think they are tricky

if we manage through this in a decent way. there is probably long-term value in some of the banks. the regulatory regime is out to get the banks. as jamie dimon has said. i think you want to go for higher quality banks if you're going to own them. we do like some of the european banks. some stalwart banks here in the united states but i think the environment is tricky for them. the u.s. banks might be more in a holding pattern but we are definitely a prepared mind for any opportunity. tom: that is a brandywine phrase. it we are in a prepared mind. jonathan: do you have more confidence being long energy or short consumer discretionary? avery: long energy because we are not priced for it. the energy stocks are cheap. the emp is and their suppliers are very inexpensive. within consumer discretionary,

we do have some modest exposure because you have companies pricing at a dire scenario but you still have -- it is very expensive continue to see pullback in spending. i think you have to be very valuation sensitive in this market with yields short-term over 5%. jonathan: given we have identified quite a few sectors you do like, when you start a conversation with you don't like a lot of equities, is it just that you don't like seven of them? avery: it is a lot more and a couple of those are not that expensive. when you're lumping them all together, there is a lot of valuation dispersion. the market as a whole, you have the s&p trading at 18 times. the nasdaq over 26. the s&p pe has gone up 10% since a year ago. short-term treasuries have gone from over 3.5% over five .5%.

you do have some areas and consumer discretionary in energy and even other areas of the market where evaluations are very reasonable. jonathan: thank you very much. we will continue this conversation later this year. no doubt about it. the s&p 500 right now positive by 0.4%. catching up with us later next hour, nadia of ubs global wealth management. the multiple expansion in the face of what has turned out to be a battery for treasuries with yields higher, higher, higher. lisa: a third year and i keep hearing this. until something breaks. we were talking about that that something would break at 3%. jonathan: something did. lisa: for a hot second and then it did not break anymore. you have to wonder what is it going to be. when you ask someone and they say i don't see it quite yet, it may be commercial real estate

down the pike. jonathan: we had pension fund issues in the u.k. some real banking issues in the united states. all worked out have these issues been? tom: i always have in my head the number one thing i ever got wrong was a collapse in russia. i completely screwed that up. i'm thinking as hard as i can, almost as much as avery the field. i am in a meeting and the answer is you never know what could happen. you say what is china going to do. forget about it. the answer is you never know what it is going to be. but we are there. jonathan: that is true. amh down in washington, d.c. live from new york. we are down three basis points. your at 450 is quite tom:

remarkable. manchester united could win a game. jonathan: this is bloomberg. ♪ (captivating music) ♪ (♪♪) the first law of thermodynamics states that energy cannot be created or destroyed. (♪♪)

but it can be passed on to the next generation. (♪♪)

>> i tell you what, this is the first time [indiscernible] the fact of the matter is that you guys, the uaw, you saved the automobile industry back in 2008. you gave up a lot. the companies were in trouble. now, they are doing incredible he well and guess what, you should be doing incredibly well too. jonathan: what a scene and what a moment in the last 24 hours. the president of the united states on the uaw picket line in wayne, michigan. your equity market, just positive on the s&p 500. the headlines in the last week, all in the bond yard -- bond

market. your 10 year, 45031. yields come again. this want to check in on ubs. more on the story for you a little later this morning. their stock is trading lower, hit hard around 4% on the back of our story that reads as follows, the u.s. department of justice has stepped up its probe into credit suisse group and ubs as well over suspected compliance but allowed russian compliance. a story this morning goes on to read that what began as a series of subpoenas sent to a range of banks has developed into a full-scale investigation focusing on credit suisse. lisa: what i find interesting. first, you mentioned this, ubs voluntarily gave up the government backstop against any potential liabilities from

credit suisse which raises the question of what kind of liabilities they are going to have. the second thing is ubs wants to expand in the u.s. the u.s. is one of the opportunity markets for this bank. what does this do to that if they are going to be painted with the credit suisse brush, and a negative one at that? it is a growth prospect in addition to a potential liability. tom: it is another headache on their global struggle. they have to battle with asian wealth management. how many headaches today have? at another to it. jonathan: many which is why the price was where the price was. tom: we are advantage here 5:00 a.m., the iris import with us. manus cranny is encyclopedic on this. he actually knows what he is talking about. i cannot understand his accent but that is a separate issue. jonathan: that is rude. tom: he cannot understand me as

well. jonathan: i feel manus cranny's pain right now because i live with this for years. tom will say i can only understand every other word coming out of jon's mouth. which is also rude. tom: maybe three out of four. jonathan: things have improved? thank you very much. tom: in washington, annmarie hordern joins us right now. those are historic images. to sum it up, what did the beltway think of the president's appearance on the picket line? annmarie: it was unprecedented. we have not seen images like this. he was carrying a megaphone, talking to autoworkers, telling them they should keep at it, keep asking for it even when a reporter said should they be asking for a 40% pay rise. the president said this is what they deserve and took sacrifices and cap these companies running during the depths of the financial crisis. to that point, the president is

also walking a fine line on the picket line because remember, a big issue that uaw has with this administration is the billions of dollars of federal money being sent out to help electrify the grid. we talked to jared bernstein yesterday. i asked him, isn't this the cracks of the issue? isn't this very difficult for the president given the fact they are very annoyed, it is very obvious, about this money that is going to ev's? it said it is not a foregone conclusion yet that those ev's not be produced and made by nonunion workers. the fact of the matter is, you are going to need less individuals to make an ev and a lot of money we have seen going towards these ev plants are in the south. this is just not the culture for workers. tom: balance of power question. does president trump need a megaphone? annmarie: [laughter] president trump i think is going to have a very different look. he will be doing more so of his typical rallies.

i know sean fame will not be standing next to him, whether or not maybe he goes up and protest former president being there, he has come out and said it is individuals like former president donald trump that we are actually standing for, that billionaire class. he will have i think a classic mic and podium. jonathan: breaking news, there is a gop debate later and nobody is talking about it. how are those guys, the group of individuals going to get any traction whatsoever? annmarie: they are going to have to try to figure out a way they can break out. trump will be doing his own counter programming in detroit, in michigan, in a huge swing state he was able to flip in 2016 but lost in 2020. this is a moment where a lot of focus will be on desantis. i think he had the middle-of-the-road in terms of timing he was able to grasp on the last republican debate. a lot of people are going to come after him. donors have been still waiting

on the sidelines to see whether he can break out. tim scott is going to try to break out. recently, you have seen some of these republican candidates start to attack the front runner, former president donald trump. for tim scott, it has been about abortion and saying the former president looks to turn his back on the pro-life movement. then you have nikki haley, the u.n. ambassador, former governor of south carolina. she has attached trap at the first debate and will likely do it again because they are going to be asked about the shutdown. fiscal health and fiscal priorities of what her administration would look like. she attacked the trump administration for adding $8 trillion to the debt. it is going to be very difficult to break out given what we see in the news right now with the looming shutdown in washington and the former president taking center stage in michigan. jonathan: based on some of the polls i have seen, nikki haley does quite well head on the national level against president biden. what did she achieve on the

national level that she is not achieving in the primaries? annmarie: it for the primary with all of these candidates, and i think the real thing, paul ryan was at a fireside chat at a university and said you have to look at state-by-state polls. some of these, you can see these individuals doing very well, less so than you see those numbers reflected on the national polls. the issue they all have is the former president holds 30% of this party and this base and we have yet to see anybody coalesce around that number two that could potentially take the remainder of that 70%, 60% of the party to get them through. that is the issue they have right now. even if they do show they would poll very well in a general election, they still have a trump problem in the primary. lisa: is the debate between governor newsom and governor desantis going to get that much more attention? what was the genesis of this?

how do we understand what this is? annmarie: which one? the government to governor debate? i believe that was newsom's idea. he sat down for a very long extended interview with sean hannity over the summer. i believe he said he would be willing to debate governor desantis, taken head-to-head about what is a better state, california or florida. and then sean hannity was able to get it done. that will be happening at the end of november. i think it will be a fascinating debate because potentially, the two individuals could be head-to-head for the presidential run. jonathan: -- the potential for this debate? annmarie: they do talk about how gavin newsom is going to be there this evening in simi valley at the reagan library. he is going to be the spin doctor for the democrats. they do use him as an individual that could be a strong surrogate for this administration.

he is asked constantly, and i know you saw the sean hannity interview, he was asked constantly by sean hannity and said i'm not running. i back president biden. jonathan: thank you. i did watch that exchange between sean hannity and governor newsom and i can tell you hannity is a tough interviewer. as you know well. governor newsom did a really, really good job in that conversation. if you have not seen it, engage with it. have a little look at it. tom: particularly for our international audience. a lot of the credibility is not celebrity garbage. it is actual skill sets. mr. hannity has been like that across the aisle as well. jonathan: governor newsom is

jonathan: on the s&p higher by .4%. in the bond market, yields a little bit lower but much higher over the past few months. two year at 5.05. 10 year at 4.5. tom: i look at inflation and how

quickly we got there. the interesting thing is the panella spread, the difference between the two year and tenure most experts would say it's not the depth of the inversion. it is when you turn and distant bird and that is what's going on now. -- it's when you turn and disinv ert. lisa: there have been so many people talking about how much they like yields including our next guest. at what point do you see the action, seeing action in the fx market. jonathan: the yen against the

dollar in the dollar against the yen. that is a stronger dollar story with the weaker yen and euro. atat what point does the boj stt doing something? tom: the answer is every sequential intervention you do the theory is less advantageous. they have already done done one ballet in the next one will take more ammo to get the same effect. jonathan: the yield curve control, how much can they tolerate? a u.s. government shutdown is nearing its deadline.

no build to overcome the deadlock in the house. lisa, explain this. lisa: they are trying to force business to get down without the shenanigans. kevin mccarthy is on the hot seat. republicans profoundly do not care. the dollar is the place to go. washington is a mess and that's the story. people are shrugging this off. jonathan: does the story have a similar to this story? the ftc is taking amazon to court and in antitrust case. this is the fourth suit that the ftc has filed against him this

year. lisa: in the head of the ftc has not been successful, this is been her cause since law school. amazon shares were down 4% yesterday. these are the cash cows of the market and are consistent market players because they do have so much of the market and they have this kind of power. tom: if trump wins, what happens? i'm asking? jonathan: i wonder if this will continue? tom: i remember when the justice department walked away from microsoft. lisa: in fairness, as sounder so

she doesn't have a point. if you take a look at what is going on, amazon penalizes merchants that has prices lower on another site. tom: i have my cell phone, someone in the west wing says we are out of this, and then boom. jonathan: over the last few years it feels like -- hollywood writers are back at work this morning after reaching a deal with major studios. union workers get a 5% boost and pay and more protection against ai.

actors from sag-aftra remain on strike. lisa: i thought it was interesting what was on the line, artificial intelligence, so they will still get some royalties. maybe tweak this ending, tom: in 2011i joined mohammed el-ehrian as he walked into the hall of fame for fixed income.

it was told us to read this. it was a who's who. the z-score and all that. let's take a few seconds here. we were weaned on the same boat,

-- book. the yield book. tell us about what that book did to you and me and straightened out our head about discount cash flows? bob: i heard marty leibowitz, i have the original copy of that book and i decided not to bring it in and have him autograph it and i was scared that he would see that i underlined the wrong things. for mean, it was very special. lisa: the key moment in the bond market they are saying it's an incredible value and tenure pushing against the grain. bob: i will admit, we are bond buyers.

we have been swimming upstream for the last couple of months. i've book past silicon valley bank, and we all thought we would have a serious retrenchment out of that. from june 2 this past week rates have continued to go up in the narrative is become it is more of a soft landing. we look to all of the income coming in for the inflation reduction act act and they are l rippling through the system. but we are seeing is the underlying data continues to get worse. we look at the consumer who continues to get stretched and we think buying duration we will start to swim downstream again. lisa: how do you understand where the bad has gone wrong

given that yields of ghana much further than anyone thought ghah further than anyone thought was -- yields have gone up much further than anyone thought? bob: i have gone back and looked at the previous cycle and we should have been more surprised if we did not get back up and yields and this is happen every single time. about the same magnitude, 50, 60 basis points. we looked at the end of the fed hiking cycle in 2006 and yields fell dramatically and they went back above the 5.25" height. hike. and by the way, in june 2008 they went back out 100 basis points. until these long and variable

lags head you are in this never never land of something that feels like a soft landing. you're not getting more rate hikes, you're not into a recession in the market oscillates back and forth. the fed will congratulate themselves on a soft landing. jonathan: you can't throw around 2006 without giving the kinds of things you are concerned about. this is not the run of the mill recession where used to. bob: is not that the rate hikes will happen without consequence. it did not cause regional banks to backstop and we look at the

consumer facing the end of their savings. now they are facing the higher cost of everything. higher energy prices which will dig into consumption elsewhere. we looked at temporary health services jobs, they have turned down. we voted home price affordability, housing affordability. it is the worst on record. the data only goes back to 1987. by the high home prices in the cost of finance them, we have never seen this. when you hear about the current generation talking about how hard it is to buy a home, they are 100% right. we've never seen this before. jonathan: if you're just joining

us, and the bond market we talk a lot about two-year, 10 year. the 30 year treasury. is trading like $.50 on the dollar. i think 19% of it is solved by the federal reserve. you said what you did not anticipate where the actions of the fed after the spring. will we not see additional strength in the banking system based on the additional moves from the treasury and the last few weeks? bob: i think you have to anticipate the entire banking system has not been solved yet. there has been a band-aid put over it but you are sitting with a whole host of regional and

community banks where their security portfolios are further underwater. sure they can posted to the fed and get cents on the dollar. you also look at their loan portfolios. those are also quite low. jonathan: we will continue this conversation with bob michele. that conversation will continue. this is bloomberg. ♪ ♪

♪ (captivating music) ♪ (♪♪) the first law of thermodynamics states that energy cannot be created or destroyed. (♪♪) but it can be passed on to the next generation. (♪♪)

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federal resource efforts to fight inflation which can complement other factors that can help with prices including increasing supply. jonathan: that was michele bowman weighing in on fed policy in the united states. by from new york city, s&p is having a little bit of a lift. this was a big question, the treasury is down, stocks are down. treasury up, stocks out. lisa: there is a question of whether we understand the bond market. a lot of people have been saying it's technical, structural, is this, that. maybe yields can go even higher. but it's incoherent.

jonathan: in 1996 black and gross at the hall of fame we had the great moderation. it's like the wind behind you, there was a band called mountain that had a song called nantucket sleigh ride. where having a nantucket sleigh ride. this is my personal calculator. all of this is out the window now. here is what are audience knows.

the vanguard fund is down 7.5% annualized. that is what our audience is feeling. how do they turn that around? leave bonds? bob: we are at an inflection point in the bond market, the last 15 years were not normal. we got to a structural low. and now we will refer to something that is more normal. maybe that first fed dot, it took 27 years for the fed to get from 20% to zero and maybe this time we go to zero and 5.25". next time they go to 6% and we

figure out what that ranges. tom: is the great moderation over? this is the vanguard index and this is what our audience is feeling. we are 21% from the peak. what do you sated jamie dimon about this? bob: we all hope that we moderate at a reasonable level of interest rates. i would hope that in five-seven years, a 5% 10 year treasury is normal, not one point five, 2%. it will take time to get there. tom: 5-7 years is not in the vocabulary of financial media and wall street.

bob: although i did hear that i should be open to the possibility of 7%. lisa: what did you think about that? bob: it is a reminder to me that i sit here and i think about could the fed code to 5.5, 5.75. could they go to 5.75, 6%? no. the time we get to that meeting and the guy who sits at the top of the houses thinking you idiots. what if all of this liquidity has not been run out of the system. it re-ignites and we get something like 7%. it happened in the 80's. he is running the whole show and i am grateful that he is thinking about those things and i get back to my little world is

it 5.75 or are we stuck here? lisa: you will let him worry about these 7% interest rate. bob: i think he is pretty clear that that is a stress test and not his game scenario. lisa: long and variable lax that's what we keep hearing about with jim bullard saying we have already seen that move. how do you push against that when you have highly financialize market is stucco bob: i would've waited until two years past from the period of fed hikes to see whether those long invariable lacks it. the fed's own studies show it is

18-24 months. here we are about 12 months into it and we should start seeing that. i don't think they have fully hit, we have only seen the front edge. you talk to anyone in corporate america, the big companies have trimmed down their dead and they have to go and refinance that. anyone looking at a home they can't get a mortgage at 3% they are in the 8% category. and if people need to move they will have to step up their mortgage, the cost of finance auto says gone up. and through the chase credit card data, credit card use has gone vertical with a much higher cost of funding. the consumer is already stretched and they're trying to maintain their level of spending. it will cost somewhere on credit. lisa: we have heard that people

acknowledge that but they're still not buying treasuries. the housing market is broken but house prices are surprising to the upside. kim the fed rate stay here even with the downdraft being felt by the market? bob: the end of this week will be interesting because on thursday we get benchmark revisions to gdp which we expect to be lower. that will bring into question how strong the economy is. we get personal expenditures on friday. while the year-over-year may come down below 4% you could have another .2. which is bringing inflation close to 2% target. as long as those growth and inflationary pressures, the trajectory is now on at some

point the fed's methods will look outdated. jonathan: who will take the duration supply next year? bob: we get inquiries from retail platforms and institutions wanting to know is this the time to go into bonds? there was a lot of float the start of the year but i think it's only the tip of the iceberg. there are a lot of pension funds that are looking at what are the best opportunities for risk in the next few years. there will be plenty of buyers out there. jonathan: what is holding them back? here it is, 4.6. bob: at the start of the year

when they put money in yields rallied rapidly. they pulled back a bit, yields continued to go up and then they pause. tom: what does the signal out there, where you go from a fear of catching a falling knife to something else? bob: i think you have to see something that shows a material slow down. i think everyone is comfortable with the disinflation narrative. when we see the job market suffer that will be a signal. jonathan: bob michele from jp

morgan. thank you so much. this is bloomberg. ♪ ♪ are needed most. drawing on deep expertise across the world's public and private markets in pursuit of long-term returns... pgim. our investments shape tomorrow today. and your store was also the first time you realized... well, we can do anything. cheesecake cookies? the chookie! manage all your sales from one place with a partner that always puts you first. (we did it) start today at godaddy.com

the market is going to look past the shenanigans on washington and focus on what the fed is doing. >> inflation has been trending

rapidly lower much faster than the fed is expected. >> that is the risk for the fourth quarter, consumers are spending but there also filing for bankruptcy. this is bloomberg surveillance. tom: we are together again and markets on the move. one correlation today unlike monday and tuesday is oil at $95. jonathan: the euro is at 1.05 which means euro weakness in oil strength. tom: we have covered this morning. we will do a little more data

for you. i look at where we are and i go through a tangible study about tangible things. oil is dead on. real estate is a tangible asset. jonathan: 450 on a 10 year, this is the stuff people dreamt about years ago. but people do not want to catch the falling knife. tom: it is unimaginable that the time could break down below that trough. but it is getting there. they are getting close to new

low prices. lisa: after year of losses in the bond markets. there is a question then what will trigger a reversal? what will trigger with people with conviction but this is still the yield of dreams and not a precursor to a new era with potentially higher rates? this is a shocker for a lot of people. this is why you haven't seen bigger dividends in the credit market. tom: the three of us look at different tea leaves to indicate stressors. what is your tea leaf? jonathan: the high yield

spreads. they are still historically tight and resilient. it's not house prices going up. is not employment or jobless claims the u.k.. when those start, that's when you get on the phone. you haven't had that feedback yet. tom: you read in new york city about each real estate transaction. lisa: people are looking for to be the catalyst to armageddon and it's not. we are looking at a market that doesn't have that kind of

catalyst which is why people don't know what will start the selloff in bonds to cause yields to be higher than 2007. tom: i'll start with the 30 year mortgage breaching 7.75% how close is that to 8.00? jonathan: the euro is breaking down to 1.05. dollar-yen 149 .20. getting closer to 150. that's a weaker yen, weaker euro and much stronger dollar. tom: the mexican peso at 17.5.

nadia, thank you for joining us. give us a siren call of the new level of cash will be be 5.25. 5.55. do i need to be in cash? >> i don't think you need to be in cash. there are opportunities in the market, equities in the bond market. we think there is some upside to this market. i think it's healthy and it's time to go into the equity market. we think yields will will trendr in the next couple of months. we will be looking to add to bonds as. lisa: are you looking at consumer discretionary?

nadia: mutual consumer discretionary, the energy factor and it has done quite well over the past few months as we upgraded it three months ago. but we continue to believe that oil prices are sustainable in this range. we think there is a little more to go in the energy drain on all-purpose companies with energy. lisa: there's a question of what will trigger that when people see a strength of its unexpected in the economy and they say it will cause inflation to stay higher for longer in the fed to be on hold for longer. what do you think will make yields go lower with the signal

of weakness being expressed on the market? nadia: we are looking for economic growth, we are looking for gdp growth around 1%. we think inflation is going to remain on its downward train -- trend. we think that inflation has cooled off and that should show on the markets and the bond market. tom: the bond market is in of bear market. in the equity space, i'm confused. are we a bull market off the

october lows or are we reaffirming the bear market reality in stocks? nadia: i don't think we will reenter a bear market and equities. we think you should be starting to see an inflection point after the third quarter. it will be supported by a growing economy, we will be looking to 2024. is not an indication of a bear market. tom: what he do with tech and other high flyers like luxury which has been beleaguered? what do you do with those leading sectors from before? nadia: you will see a pullback

intact. we think this pullback can provide an opportunity. what will be really important is that you will no longer see ai move stock. we think we will start to see some growth in areas in the past that have been strength are stressed. while there is a phones. rule number one and two, those that have secular exposure to ai , they will have a different exposure. lisa: when we think of these macro chance and micro stories. like with the ftc and amazon.

how do you view those headlines and translate them? nadia: it's important to keep an eye on these things because obviously, any lawsuit could break up a company. these larger companies have a lot of value. i think in the near term what will matter more as the earnings growth than what the fed is doing and how the economy is doing. these regulations take a long time to play out. jonathan: nadia, thank you so much. in charge of wealth management at ubs. lisa: do you think it is something else that is bringing stocks lower? you raise the point, as we have

seen again nothing has come of this. jonathan: we have no access to any news whatsoever. lisa: people are looking at the ftc suit as an excuse to sell? tom: data dependency becomes ever more crucial. we wrote on twitter that it will take a lot of courage on display. jonathan: encouraged by and this bond market, at four point 5:05. yields are a little bit lower by three basis points.

what will change it? what will they demand from the treasury market ultimately? the problem is, it's the cries of recession and now they are still seeing this is it. lisa: there are strategists saying that you will keep getting it wrong until people start buying a little more. jonathan: we had this conversation earlier, do you think this bond market is a reflection of the resilience in

this economy or a recipe to drive and pain into the economy? based on the move and discretionary it is the latter are not the former. tom: hopefully our next guest will be able to frame where we are. we will go to the data in the first thing is to get to the weekend. what am i watching the most? i am watching real estate. jonathan: the dollar is the strongest it has been since 2023 and crude at the highest of the year at $95 on brent. next stop we will be speaking with amrita ran. ♪

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you want to fill that gap and supply. when you talk about 5-10% of personal wealth that's a risk premium. jonathan: that was the head of energy strategy at jp morgan. we have heard a lot about a hundred percent -- we do not see a crisis near term, with a hundred crude is starting to drive the micro view. tom: joining us now, how does saudi arabia react to long-term oil and strong dollar currency

turmoil worldwide inside and outside of opec+? amrita: that's one of the reason why they've insisted in keeping this price. why preempt that by bringing barrels on. we get a big slowdown in growth only for to be pulled back. lisa: you came back from this conference, david solomon from goldman sachs, was the tone optimistic that you should start investing again with the idea of higher oil prices? amrita: the mood was optimistic but i think there was a sense of pessimism because the markets

are really allowing ceos and companies to invest. i think you're starting to see some european companies backtracked with some of their targets. but in general, the support of western governments remains very limited and with the focus on monthly -- lisa: without government backing, do you agree? that's my internal skepticism. what is your take? amrita: what is the difference between 150, 200, i would not call for these numbers. the point i would make we have been calling for high prices towards the end of the year.

my fear in this market is that we have so much inventory and what is going on in the going o. pushing is dry. it can't keep barrels because the rest of the u.s. is so low. dubai spreads have gone so three dollars which shows you this market is very tight and we are not seeing tons of investment from companies not because the ceo doesn't want to but because governments and society are not allowing them to. we don't have enough projects on the pipeline and that is where opec really has to step up and that's where the projects are coming through. jonathan: you are saying the macro isn't driving crude crude

is driving the macro. amrita: now you have seen in the bond market, the turmoil we have seen. but crude has held up and that is driven by fundamentals. the worry now is that crude markets are this type we see oil prices coming up and will not affect the fed's decision? jonathan: have elastic is the market for crew products? amrita: i will say this because i have started to see this not just in china but other parts of the world. it is very early days so don't ask me for a number. i am sensing that it is becoming more and elastic elastic - inel,

oil will continue to grow. now people are having to come into work and there is more driving from further away because people have moved further out during the pandemic. we are not seeing the same impact from higher prices. let's see what happens next year but i'm keeping an eye on out. tom: do you want to put a number on that? goldman sachs made it clear that the tangible real yields, the end of the free market we've seen changes oil investment. are you beginning to see an indication that a change of 2% real yelled changes how oil animals think?

amrita: we've been talking about it since april, nobody wants to hold since april, nobody wants o hold inventory. we need that buffer buffer, whae in libya happening. because of the rising rates it's too expensive and that's what creates the risk for an upside surprise going forward. for an upside surprise going forward. tom: you made some real headlines and $95 per barrel. $95 per barrel. get us beyond that to the fear of $120 a barrel. how do we get there? amrita: those kind of numbers, you will need some kind of supply shock. in the day-to-day trading, 195

195 visit probably not a big call. one of the things to bear in mind,mind, in some ways you havo put a risk premium and once you break through the next level we can go to the time where we hang around $100 unless there is supply going down. jonathan: how do you think the saudi's position is? amrita: it's very sustainable. to the macro concerns, we have started to get concerned -- your concern.

what we have seen, we always keep an eye on the market and we have an opec meeting in vienna. there are a lot of key things to consider before the year end. jonathan: amrita ran, thank you. tom: citigroup, they do a lot of smart stuff. we missed a lot here because are so much to watch. the house of jane fraser, a reverse 10-one split.

we get down to four dollars per share. jonathan: is up our chat or bar chart? tom: i thought it was part chat. jonathan: someone has to access the material. amrita, thank you. coming up on the open, amy wu silverman, tony dwyer. your equity markets are trying to come back from three year lows. from new york, this is bloomberg. ♪

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tom: surveillance on radio and television. lisa abramowicz on tom keene here. we have been doing durable data checks all morning. it's a durable bond market as it tries to find a durable price. lisa: tries to find a durable data point to give direction. we get durable goods in just seconds. it's important to say the dollar strength is the one move that has permeated and continued from day-to-day and continues today. tom: with a durable report on durable goods, michael mckee. why do they matter? mike: that's a durable question.

gets asked a lot. the headline numbers don't matter as much is the capital goods orders. let's start there. up .9% after a .1% gain the prior month, which is a surprise. we will have to see if that is revised. the capital goods orders is good news. that was revised down to negative four. over the past two months, you have a swing of .5%. durable goods orders overall up .2% after falling 5.6%, a revision down by about .4%. x transportation up four. the headline was expected to fall more because x transportation take out the boeing numbers is what you have to do. at this point, it looks like that did not matter all that much. shipment 7.7%. i heard you and steve talking

third-quarter gdp during the break and that will feed into that. these are august numbers for third-quarter and shipments obviously stronger than had been anticipated. so it looks as this point -- at this point like reasonably good news. cherish these numbers because we get tomorrow and friday and we may have to go a long time without data. be excited out there. >> michael mckee on sabbatical if we get a shut down. he's leading our coverage on shutdown central. more on that. look for balance of power this evening to give you an update on what's going on in washington. lisa, quickly -- a little bit of market movement. i don't know what to make of it. lisa: you saw two year yields inflect upward but this will not make or break the bank. the idea that the headline number came in better than expected, another better-than-expected data print, keeps people on edge that that's the economic surprise,

continuing to the upside, rather than the deterioration continuing and deepening. tom: brent crude $95.36, buttressed up against $96 an hour ago. we will sum all that together and we can do that with stephen, chief u.s. economist at a firm. let's go to third-quarter gdp. the answer is you are more optimistic than many. state the optimism. steven: the reality is the consumer began the quarter on a very strong note and we have seen it tail off as the quarter goes on, but considering quarterly average data, raising the early part of the quarter at the end of the previous, sets a higher base for the quarter in general. then you have information like you got in terms of durable good shipments.

you can look at the investment expenditure components. the actual level of construction started is there. we have a reduction in the trade component. when you add it all up, a surprise in the gdp numbers is healthy, more aligns with the atlanta fed numbers than the new york fed. lisa: we have the idea of people saying they feel uncomfortable, that inflation is impeding their ability to spend money in other places, and yet home prices went up. we hear people are less confident they have been -- confident than they have been in more than six months, yet we are seeing consumer spending remain robust. how do you pair what people are saying and what people are doing? >> there's a disconnect and there often is between what people say and do. i am concerned but i'm more concerned about where it's going to be in the future but, you know, i feel like getting this done, and i am employed in feel comfortable in my job. ups workers are making a lot of

money. uaw workers won a 40% wage increase. i have a good job, nobody can fire me, i will go out and spend money. and now shadow banks are willing to lend to them so they are spending the money. lisa: will they get the wage increases? we see the strike activity is accelerating on some level. we have seen some sort of revolution with the writers -- sort of resolution with the writers guild. uaw still ongoing. you have the las vegas bartenders and other -- and housekeepers and food servers authorizing a strike in that region. is this going to push wages higher regardless of how much the gdp hangs in there? steven: the reality is there's a wage pressure problem and even though there's a smaller percentage of the economy that is unionized now than last time we had a significant wage related issue in the economy, the fact that we have 24 hour a day, seven days a week, 365 days

a year financial press and they are looking for things to talk about, everybody hears it all the time. so that helps drive the momentum behind, yeah, i deserve to get paid more. tom: the idea of you and another in the same hall is extraordinary. dominic costim has been screaming that this fed is super restrictive. i see it in the bloomberg financial conditions. finally, the accommodation of the last 90 days is coming in overnight. the bfic dipped. hot brown water. but essentially we are becoming more restrictive. how restrictive are we now within the kostam restriction? steven: the question is really how restrictive do we need to do to -- need to be to get the result we are looking for?

the long end of the curve until recently had been well-controlled. mortgage rates were high but corporate financing costs. the new look at the belly of the curve, where securitization takes place, and it was 100 basis points through what we are looking at. everyone expected 100 basis points worth of cuts. we have taken out 50. we will take another 50 out. the reality is the restriction we have in terms of the fed funds rate is not necessarily the restriction being transmitted to the rest of the economy and that's been the problem for the economy and the fed. tom: how does chairman powell adapt to that? how does he adjust? steven: the problem for the chairman is other members of the committee continuously torpedo the ideas that are laid out in terms of the fomc. tom: he is the chairman. it does not matter. his vote reflects the committee in general. greenspan was a different

chairman. his vote counted more than anybody else's. this chairman does not have that clout. the result is you have a situation where the political economists versus the academic economists are winning. tom: it is september 27. that's the most important comment i have heard on bloomberg surveillance in 2023. lisa: i want to go back to the idea of wage pressure. you are basically saying that it is the media's fall because we are looking for things to talk about so we are talking about the strikes and its leading for people asking -- leading to people for -- people asking for higher wages. are these wage increases sustainable with the business models as they are? steven: again, i am not blaming the press. i am just saying that's part of the dynamic you have to take on board. that's number one. number two, you have to realize the problem -- the benefit for companies is up until recently the equity market has been

giving them a pass. in the first nine months of the year, operating earnings are down, yet the economy has been above growth potential and inflation has been high. yet the market is assuming we will have a 12% rise in earnings next year. the numbers don't add up. if you cannot get positive earnings growth at all so far this year, how are we going to get 12% next year? the equity market comes down. companies will be forced to say i have to increase my margins. i will go out and start shedding my workers. that is when you start to see the consumer come down. that is where the risk comes of a 2024 recession, not when the equity market starts to tell ceo's you have to do something about your margins. tom: this is a fascinating point because a lot of people are looking to why is the stock market so optimistic? is this sustainable? you are saying that's what's has to give -- that is what has to give. if we don't see them until next

year, until later in the year, how high the benchmark rates go? how much could this fed overshoot it, in your view, to get it down to 2%? >> again, the reality is the terminal rate is a moving target. it is up to two things, how quickly the long end of the curve stresses the fed, because the market -- the fed is willing to play games, or at least some of the mark, with the idea of a 2% target. those are fine examples of the problems. when the chairman says i'm adamant on a 2% target, there are other members of the committee that can say, we will rethink it. no one is going to believe 2%. the reality is long-term rates are moving higher. as long term rates move higher, inflation expectations become unanchored. then the fed has to address the situation that inflation -- that if inflation expectations become unanchored, what do we do? do we allow that or take action? i think they will eventually

take action. tom: you are so fired up. we have to do a data check because the markets are moving. good morning across america. lisa, it's green on the screen. the equity markets say everything is fine. lisa: the issue is something has to break it. to your point, if the fed is truly committed to that goal and is concerned about how on board inflation expectations are, what more can they do -- how on inflation expectations are, what more can they do? steven: you saw that last year when bollard came out -- when bollard came out and said we have to go 75 basis points. the result was inflation expectations became anchored again for an extended time and the equity market managed to do better. this time through, it's questionable with the new composition of the committee whether they will make those same steps. the market is building in an inflation risk premium.

a term premium is nothing more than an inflation risk premium. they are building this in because they say there's a 2% target put is it really? i am no longer believing them. tom: you need a data check. futures up 16, the vicks 18.30, showing some of the tension. in the bond market, distant version continues with -56 basis points. 2.22 percent but a stunning 2.18% on the 10 year. i have the dollar stronger. dxy strength about 40 minutes ago out. we will monitor that through the day. s&p 500 green on the screen, up .4% over percent -- up .4%. lisa: this idea that the risk premium, the term premium, is no different than the

inflation premium, that people believe the fed is not committed to get to 2%. economically, does that create a risk for the economy that people are under appreciating? steven: it creates a risk for long-term investors. when we were in the three and 75 to 4.25% trading era, we were priced at perfection for a 2% target. you are right there. if you are going to say 3% is the target now, than i'm talking 4.75% to 5.25%. that's a long way from where we are today and that becomes the issue. the issue first is for the markets and then we can talk about the issues for the macroeconomic environment. mortgage investors or people who want to buy homes will not appreciate the fact that long-term interest rates are going at high, but this is the risk the fed takes, and if you change the inflation target, i'm afraid your credibility disappears. tom: what is, for america, a 2%

plus real yield? a huge body of people have never experienced this. what does it mean day to day? steven: the question is is 2% real yield enough? i am not sure it's enough. go back to what you and i lived through in the paul volcker days. where did he have to stop? he stopped at 26% fed funds rates. i'm not saying we will get there, but be careful in taking a terminal rate. tom: we have to get you and dominic on set together. are you on speaking terms? steve, on speaking terms at mizuho securities. coming up, david rubenstein of the carlyle group. ♪ explore endless design possibilities.

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>> i think it is nuts to make a big issue of this debt. that says it simply it is a stupid rule we have in america

that congress has to approve twice paying for something they have already spent on. a lot of people opposed to raising the debt ceiling voted for most of the debt that is embedded there. tom: he is 77 years old, former president of the united states mr. clinton of arkansas. the 92nd street y with david rubenstein and secretary clinton, hillary clinton, bill and hillary clinton on bloomberg tonight together at 9 p.m. you think you would show up and it would be like happy, happy. the material of this interview with david rubenstein is stunning. lisa: especially at a time where there are questions about what a changing of the guard in washington, d.c. would look

like. tom: whatever your political persuasion, mr. rubenstein has hit a homerun here on the controversies deeply embedded across america. he's cofounder and cochairman of the carlyle group. david rubenstein joins us. i have eight ways to go but i have to go to the idea that the former president of the united states thinks the electoral college of madison, jefferson and the rest is out of date. is he serious? david: he favors the recollection. it has some problems but as he points out the electoral college was set up a we had 13 states and it was set up in the way that was designed to help the south have more influence in the election of the president because of the slavery issue. in the end, the recollection has been talked about many times over the last 200 plus years and i think it is unlikely we are going to change because it would require a constitutional amendment, which requires two of

each house and three quarters of each state and the smaller states will not agree to a direct election, system which eliminates their influence in the electoral college. the most important thing i would take away from the interview is that bill and hillary are still very deeply involved in what's going on in the united states. no couples since eleanor and franklin roosevelt have together had as much influence for as long a time as the clintons have had. bill clinton was president for eight years. hillary clinton a senator for more than one term and secretary of state for four years. the combined experience the two of them have is quite unusual. eleanor roosevelt never held elected office. interestingly, i think they still have a lot of influence in the democratic party. when they talk, people do listen, and i think they are widely regarded as having good political insights and policy chops. i don't think that today they are likely to be able to influence president biden that

much, though they know him. president biden is on a certain trajectory but there's no doubt they have influence throughout the democratic party and probably some influence with president biden. >> there's a really intense debate among a lot of people talking about the age of the candidates running for office and whether it represents the rank-and-file of the country, why it is that mainstays in politics have continued to be the headliners again and again year after year, even as some people would argue they may be aging out. what was the view on that of the clintons? david: well, they are not going to say anything specifically about the age issue in a way that would be upsetting to president biden, but there's no doubt that both of them are in their mid-to-late 70's now and they recognize, when you are in your mid-to-late 70's -- i am 74 -- you probably have more challenges doing certain things

that you could do before. in a different form, interview jim baker, former secretary of state, now 93 years old, and you can see he's very smart still, but when you are interviewing someone in their 90's, it's different than interviewing someone in their 60's. i think the president today is i guess 80 and is -- and the likely candidate against him, donald trump is 77, so it's a different situation. when john kennedy ran, he was 43. that was thought to be too young. what is too old or young, nobody knows. there's no doubt that as all of us age we recognize that it gets more difficult to do certain things in your 70's then you could do in your 60's. tom: no. lisa: it's a good point and age is different for each person in terms of what they can do. the reason i bring it up is because it has played so heavily in polls at a time when people are under -- are trying

to understand what the new path is. a lot of this had to do with the globalization and what that did to the industrial complex. did the clintons weigh in on how they see globalization at a time when it's really being called into question? david: i don't think they think globalization is going away. they think it's been challenged a bit. china is a more complicated country to deal with and it was before but i think globalization, they would say and i would agree, is here to stay. clearly the congress of the united states is more divided on globalization them when president clinton -- globalization than when president clinton was in office. we brought china into the wto and now there are some who think that was a mistake. i think it was a good thing to do but there are many who think we have given china too many opportunities to be competitive with us and i think the clintons are not against china's being in the wto for sure but there's no

doubt it's a different environment than it was 25 or 30 years ago. tom: what will the impact of the clintons be at a convention in 2024 on the development of mr. biden running again? what do you perceive as being their impact on the party? david: their impact is that they are highly respected. i was at an event in aspen this weekend when many people, former members of the democratic party, were there. there were republicans there were republicans. hillary clinton was the speaker and she got a terrific reaction from everyone there. barack obama was there and was also well received. i expect at the next convention, bill and hillary, assuming they speak, will get standing ovations because they are good speakers and highly regarded in the democratic party. barack and michelle obama the same. that's different than saying

they can change people's votes. they have some influence. we know bill clinton is a good speaker and good at explain things and i expect he will get an incredible ovation when he speaks, as i assume he will. tom: i know the impact that brooks robinson had on me and all of us. he invented third base for modern baseball. you were a lad in baltimore at the time of that orioles ascendancy. what did those orioles teams and brooks robinson mean to baltimore then? david: for people who grew up in baltimore, baltimore was much smaller than new york or philadelphia or washington, so having the orioles win the world series gave us an enormous amount of ride and brooks robinson was the ultimate oriole. he played for them his entire career, hall of famer, the greatest offensive third baseman in history. he had health problems in recent years and sadly passed away

yesterday but i think there's nobody who represents the orioles better than brooks robinson, though he had many great players. he was equivalent to johnny unitas, the star for the colts in that era. sad to see that happen. when you are younger, you look up to people like brooks robinson. i was very young at he was the ultimate baseball player. tom: thank you. david rubenstein. the clintons, look for that here tonight at 9 p.m. on bloomberg. i cannot say enough about some of the comments that i have seen from this interview. lisa, it's just amazing to see what the path will be to two conventions next summer and somehow out of labor day we stagger through some -- through september and october next year. i cannot frame what that will look like. lisa: i cannot even frame what debate will be most important. willoughby inflation -- will it

be inflation, workers and unionization, abortion, the question of globalization and international participation? at the same time, if you take a look at all the different issues that have played, it's unclear which will be the dominant one. tom: i will go back to the culture wars as identified. but what this is really about, it speaks to a gentleman we saw on the picket line. we have to get out -- they have to get out the vote, the independent vote. they both have to get out a youth vote of a changing america. to me, it's huge uncertainty, the path we are going to see into next year. lisa: we will be tracking it. today there is a republican debate that nobody is talking about but we will be talking about it. also, former president trump in michigan. tom: we will watch the debate tonight to report to you. markets on the move.

on radio and television through the day, more data checks. this is bloomberg. ♪ good night! hey corporate types. would you stop calling each other rock stars? you're a rock star. you are a rock star. no more calling co-workers rock stars. look, it's great that you use workday to transform your business. but it still doesn't make you a rock star. so unless you work with an actual rock star. hi, i'm ozwald. hello ozwald. pam, you are a rock- i wasn't going to say it. ♪♪ ¡se fue la luz!

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jonathan: live from new york city this morning, three-month lows on the equity market and your s&p 500 is up 0.4%. the countdown to the open starts now. >> everything you need to get set for the start of u.s. trading. this is bloomberg, the open with jonathan ferro. ♪ jonathan: live from new york, surging bond yields with president biden joining striking autoworkers as congress struggles to keep the gover